Apple Inc. (NASDAQ:AAPL) will release earnings for the June quarter on July 21, and Wall Street is putting out its forecasts for the firm’s numbers. Kulbinder Garcha at Credit Suisse is bullish on the firm’s prospects, though he laments a pull back in the iPad business which hasn’t been helped by the firm’s delayed release of the iPad Pro.
Mr. Garcha says that Apple will sell 250m units of the iPhone for the full calendar year 2015. He reckons that 56m of those units will come in the June quarter, ahead of Wall Street’s view that 49m units of the phone were sold in the three months that Apple records as its third quarter of fiscal 2015.
Apple grabs onto iPhone sales
The strong iPhone sales during the period are driven by continued high demand for a phone with a larger screen, and the huge number of Android users that are buying into Apple devices. iPhone sales are what’s driving Apple right now and though some on Wall Street, like Sherri Scribner of Deutsche Bank, think that sales are going to slow, Credit Suisse is happy to call for long term success.
Mr. Garcha is even more bullish on Apple’s long term business. He says that “given high retention rates, a superior ecosystem, and multi-product compute advantage, we believe FCF of $65-70bn should be sustainable in the long term.”
Despite the long term strength that he sees in Apple’s products, Mr. Garcha’s price target on the firm is not exceptional. He has a $145 price target on the firm’s shares for the next twelve months. The 40 analysts offering 12 month price targets on the firm have a median target of $150.
Sales of the iPhone are also thought to have been strong in the June quarter by Michael T Wakely of Canccord Genuity. Mr. Wakely says that he and his team “anticipate continued high-end smartphone market share gains for the larger screen iPhone 6 devices.”
Mr. Wakely says that Apple will grow the “iPhone installed base to over 500m exiting C2015.” Facebook has 1.4bn users on a free service, but Mr. Wakely thinks that Apple will have 500m users with a $600 product by the end of this year.
There are other problems for Apple right now, and Mr. Garcha made specific reference to the firm’s slow iPad sales. He’s expecting sales to be pressured through the year, and they’re not being helped by a recent decision at the firm.
iPad Pro is delayed
The larger iPad Pro was originally slated to be released in early 2015, but reports said that Apple would focus production on the iPhone 6 Plus instead and delay the release of the larger tablet. KGI Securities analyst Ming-Chi Kuo reported last November that Apple was having trouble getting the production yield of the screen to be used in the device up to a decent level.
Mr. Garcha says that the delay will hurt iPad sales going forward. He has reduced his estimates for sales of the tablet for this year and next year, and he doesn’t see much of a solution to the problem.
Robin Harris at ZDNet, says that Apple is working on a completely new display for the iPad Pro, and that’s what’s driving the delay in the release of the device. Apple bought LuxVue last year, a firm that works on micro-LED displays. The displays made by the firm use 95 percent less power, and they deliver a clearer image.
Problems in getting those displays to mass production have kept them off of the market for the time being. If Mr. Harris is correct Apple is waiting until it can put that display out there before it launches an iPad Pro.
Most of the stories about the iPad delay have revolved around trouble with the display that Apple will put in the device, but there may be another issue with bringing the 12.9 inch tablet to market.
Building an ecosystem for the iPad Pro
The larger iPad Pro is Apple’s way to get into the office in a big way, but the firm will need to build an ecosystem around the device before it becomes truly useful. Other firms are attacking enterprise from all sides including Blackberry Ltd (NASDAQ:BBRY) with its BES 12 system and Microsoft Corporation (NASAQ:MSFT) through Azure and Office 365.
Right now Apple simply can’t compete with that. Cantor Fitzgerald’s Brian White has focused much of his writing on the firm on “Planet Apple.” That’s what he calls the “digital matrix” of services that the firm is building in order to add value to its devices. For the iPhone that includes iCloud, Apple Pay and Apple Music as well as the coming Apple TV service.
For the office Apple has little to offer. Before the firm tries to boost iPad sales with the release of an iPad Pro, it might be looking to increase the appeal of the coming device with a range of services that businesses will want to use, and ones that they’ll pay for.
iPad Pro can’t save the tablet business
In his November report, Mr. Kuo said “iPad, along with the entire tablet market, is faced with structural challenges characterized by a lack of new applications and market saturation.” Tim Cook, in the firm’s most recent earnings call, said that the drop in sales was a “speed bump.” He added that “significant innovation can be brought to the iPad,” in order to boost sales and secure the tablet market for Apple.
Merril Lynch released pretty stark forecasts for sales of the iPad through the rest of the fiscal year. The investment house says that Apple will sell just 9.9m units of the tablet in the third quarter, and sales will rise to just 10.1m in the fourth quarter of the year.
Users just don’t upgrade their tablets at the same rate as they buy new phones, and the tablet has not become essential in a world of large-screen phones. Microsoft needs to create new value in the business in order to beat the “structural challenges” highlighted by Mr. Kuo.
That’s not likely to happen this year. With the delays in the iPad Pro piling up, the earliest launch for the device is now in September, right at the launch of the firm’s iPhone 7.
Given the drop in 2016 sales forecasts at Credit Suisse and the lack of any momentum heading into the launch of an iPad Pro later on this year, it seems that those with shares will have to wait until 2016 at the earliest in order to see the iPad Pro hit offices around the world.
Sometimes Apple works on a product for years before it finds out that it’s not going to work at all. That’s what happened with the Apple TV, and it might happen with the iPad Pro.
Tim Cook and his team might realize that the device isn’t the fix to Apple’s enterprise worries and drop the device completely. We’ll likely have to wait until next year to find out.